How Installment Loans Work
An installment loan is a lump sum you pay back in equal monthly payments over a fixed term — typically 6 months to 7 years. Each payment covers part interest, part principal.
The basics
You borrow a fixed amount (say, $5,000), at a fixed APR (say, 18%), repaid over a fixed term (say, 36 months). Your monthly payment stays the same throughout — on a $5,000 / 18% / 36-month loan, that's roughly $181/month, totaling about $6,510 repaid.
How the math works
Lenders use a standard amortization formula. Early payments are mostly interest; later payments are mostly principal. Try the installment loan calculator with your own numbers.
Typical APRs by credit profile
- Excellent credit (740+): 6%–11% APR
- Good credit (670–739): 11%–18% APR
- Fair credit (580–669): 18%–32% APR
- Poor / no credit: 32%–36% APR (most lenders) or higher with subprime installment lenders
Installment loan vs. payday loan
Installment loans almost always cost less per dollar than payday loans. A $500 payday loan rolled three times can cost more in fees than a $5,000 installment loan costs in total interest. See our side-by-side comparison.
Watch-outs
- Origination fees (1%–8%) are deducted from your loan proceeds — borrow enough to cover them.
- Prepayment penalties are rare on consumer installment loans but check before signing.
- Subprime installment lenders can charge 100%+ APRs in states without rate caps — see your state's loan-law page.
When an installment loan is the right call
- You need $1,000+ and can't repay it in 30 days
- You want a predictable monthly payment
- You're consolidating higher-rate debt (credit cards, payday loans)
- You have time to shop — 24–48 hours of pre-qualification can save thousands
Reviewed by Megan Holcomb. See our fact-checking policy.